Friday, June 10, 2011

The Threat to the Arab Spring

Handouts of food and fuel in lieu of jobs, and investments to raise the productivity of work to which only the privileged have access, would do nothing to enable outsiders to compete for good jobs, or to remove the barriers, such as licenses, to self-employment.

Edmund Phelps, economics Nobel prize winner:

The needed restructuring in Tunisia and Egypt must begin with two critical steps. The first is to end political control of the business sector by the privileged elite. In Tunisia, they are the relatives and friends of Leila Trabelsi, Ben Ali’s wife; in Egypt, they are the army’s upper echelons, appointed by former President Hosni Mubarak. The second step is to end bureaucratic control of self-employment through licenses and other barriers. Only then could modernization of the economic system proceed.

The system that would be most appropriate for Tunisia and Egypt is basic capitalism – capitalism 1.0 – such as Britain and America developed in the first half of the nineteenth century on their way to having highly successful economies. The bedrock of this system are civil liberties, property rights, secure contracts, courts empowered to uphold the rule of law, local banks linked with local entrepreneurs, financial firms that supply venture capital, ease of market entry by new companies, and so forth.

Unfortunately, Tunisia and Egypt will face serious hazards as they rely on democratic forces and mechanisms to mitigate the oppressive features of the rightist corporatism under which they suffered. One hazard is a leftist corporatism, in which labor unions and well-placed cronies replace the ruling families and army officials, but political control of the economy and bureaucratic control of entrepreneurship are maintained. After all, parts of Europe in the late 1960’s began to construct a leftist corporatism to replace the rightist corporatism that ruled, with some interruption, from the 1880’s to the 1940’s.

This hazard should trouble reformers. Under Ben Ali and Mubarak, a company run by insiders had to worry only that the president might someday demand a cut of their profits or assets. But, in a democracy lacking the safeguards of a strong culture of individual rights and a constitution to protect them, companies might be even more fearful of a predatory state. If so, business investment and job creation will remain quite weak.

2 Comments:

the (bureaucratic) control of self-employment through licenses and other barriers is widespread throughout the Arab World creating barriers to entry that few can overcome enabling the established elite to maintain their position